Per the below, the tech space continues to suffer amid worries over the odds that the trillions being spent on AI will equate to sufficient future profits for those doing the spending, exacerbated overnight by competing developments out of China... While the Iran conflict remains a wildcard with political ramifications sufficient to keep the market anticipating compensating de-escalatory headlines every time things heat up (like the present).
I'll circle back over the weekend with a macro deep dive.
In the meantime:
A Tech-Led Pullback, Not a Broad One*
Stocks are lower this morning, but the headline numbers overstate what's actually happening. The selling is concentrated almost entirely in technology — particularly the semiconductor and AI-related names that have led the market for much of the year. The average stock, in fact, is roughly flat on the day, and defensive areas like health care, along with energy, are trading higher.
Two things set the tone overnight. A Chinese AI lab released a powerful freely-available model, reviving questions about whether the enormous sums U.S. companies are spending on AI infrastructure will earn their keep. And a major streaming company issued a disappointing outlook, adding to the pressure on the growth complex. Neither development says anything troubling about the broader economy — this is a repricing of one crowded theme, not a change in the underlying picture.
It's worth being specific about where the pressure sits. The epicenter is semiconductors and the hardware that powers AI data centers — a group that's now down double digits over the past week after leading the market for months. From there it radiates outward in fairly predictable rings: the big technology platforms, communication services, and the higher-growth corners of the market generally. Meanwhile bank earnings have been strong, and the more economically-grounded sectors — health care, staples, energy, materials — are holding firm or gaining. That pattern is the signature of a positioning unwind, not a growth scare.
Because chipmaking is concentrated in Asia, the selloff has a geographic dimension as well. Japanese, Taiwanese, and Korean markets — all heavily weighted toward semiconductors and technology hardware — bore the brunt of the overnight session, and our developed-Asia and emerging-market holdings are feeling that today, down more than our domestic positions. We hold that exposure deliberately: valuations abroad remain considerably cheaper than at home, and the long-term case for international diversification doesn't rest on any single theme. But on a day when the pain is specifically in global chip supply chains, Asia will feel it first, and it's showing up in the accounts accordingly.
The week's economic news was actually encouraging. Both consumer and producer prices cooled meaningfully in June, retail sales held steady, and jobless claims fell. Bond prices are rising this morning as markets dial back expectations that the Federal Reserve will need to raise rates — a welcome shift from just a week ago.
The genuine wildcard remains the Middle East, where renewed hostilities have pushed oil prices to their highest levels in a month. Energy costs feeding back into inflation is the channel we watch most closely, and it's the main reason we remain measured rather than complacent about the improving inflation trend.
Days like today are why we build portfolios the way we do — diversified across sectors and regions, with meaningful hedges in place and a healthy cash cushion. Concentrated selloffs in crowded trades are uncomfortable to watch but historically healthy for markets, and our positioning is designed to absorb them without forcing our hand.
The above reflects the opinions of Private Wealth Advisors and is provided for informational purposes only. It is not intended as investment advice or a solicitation to buy or sell any security. Past performance is no guarantee of future results. Please consult your advisor regarding your individual circumstances.
*Research and drafting support provided by AI tools under the direction and review of Marty Mazorra, Chief Investment Officer. All views, analysis, and conclusions are those of PWA's investment team.
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